Debt Free Direct

Debt solutions group Debt Free Direct, first backed by GCI at 44.5p, has suffered serious recent share price reversals and the share price has come under pressure again despite significantly improved results for the year to the end of April.

Turnover rose an impressive 77% to £28m, while adjusted pre-tax profits doubled to £9.4m – a final dividend of 3p made for total dividends of 6p. Chief executive Andrew Redmond flagged up a turbulent financial year in which Debt Free Direct saw the demise of a number of its creditors. The group itself suffered from increased competition, creditor reluctance to accept IVAs (Individual Voluntary Arrangements) and consumer unease.

Run rates of new IVAs in the current year are so far in line with the second half of last year, though Redmond argues Debt Free Direct is well positioned to build volumes again, thanks to an improving share of the IVA advertising space and signs of renewed understanding among creditors. Consolidation in the debt advice/IVA sector is starting to take place, and Debt Free Direct is playing its part, having just acquired Clear Start UK for £11m. This fast-growing consumer debt advice business recorded a pre-tax loss of £1.4m on turnover of £4m in the year to 31 March.

Pre-Clear Start, analysts were looking for earnings of between 24.1p and 25.5p for this year, rising to between 32p and 38.2p for 2009. Based on those numbers, Debt Free Direct trades on a forward p/e of only 10 times and looks substantially undervalued.